Obama 'optimistic' on reaching deal to avoid fiscal cliff

Obama 'optimistic' on reaching deal to avoid fiscal cliff

By Associated Press
| December 28, 2012

President Barack Obama, pushing for a deal to avoid the looming tax hikes and spending cuts known as the "fiscal cliff," entered last-minute talks with Senate leaders Friday, saying he still believed an agreement could be reached before the Jan. 1 deadline.

After Obama and the leaders of Congress held an hour-long, high-stakes meeting Friday afternoon to try to avoid the severe, automatic austerity measures that threaten to send the economy sputtering into another recession, the president called the gathering "good and constructive."

"I'm optimistic we may still be able to reach an agreement that can pass both houses in time," Obama declared in a brief news conference. Obama referred to "dysfunction in Washington," and said the American public is "not going to have any patience for a politically self-inflicted wound to our economy. Not right now."

Obama's meeting with congressional leaders—the first since Nov. 16—happened after the president cut short his Hawaiian holiday to return to Washington. It likely centered on who would face higher tax rates, extending unemployment insurance and preventing a cut in federal Medicare payments to doctors, among other issues.

Surprisingly, after weeks of postelection gridlock, Senate leaders sounded even more bullish.

The Republican Leader, Sen. Mitch McConnell, said he was "hopeful and optimistic" of a deal, adding he hoped a compromise could be presented to rank-and-file lawmakers as early as Sunday, a little more than 24 hours before the year-end deadline.

Said Majority Leader Harry Reid: "I'm going to do everything I can" to prevent the tax increases and spending cuts that threaten to send the economy into recession. He cautioned, "Whatever we come up with is going to be imperfect."

Officials said there was a general understanding that any agreement would block scheduled income tax increases for middle class earners while letting rates rise at upper income levels.

The U.S. faces the fiscal cliff because tax rate cuts dating back to President George W. Bush's tenure expire at the end of the year. The pending across-the-board reductions in government spending, which will slice money out of everything from social programs to the military, were put in place last year as an incentive to both parties to find ways to cut spending. That solution grew out of the two parties' inability in 2011 to agree to a grand bargain that would have taken a big bite out of the deficit.

Facing a deadline that was born out of Washington's dysfunction, success was far from guaranteed—even on a slimmed-down deal that postponed hard decisions about spending cuts into 2013—in a Congress where lawmakers grumbled about spending the new year holiday in the Capitol.

If Congress can't reach a broad deal to rein in deficit spending, Obama said Congress should allow a vote on a basic package that would preserve tax cuts for middle-class Americans while extending unemployment benefits for the long-term jobless and working toward a foundation for a broader deal.

Republicans and Democrats say privately that any agreement would likely include an extension of middle-class tax cuts that had been set to expire at the end of the year, with increased tax rates at upper incomes—a priority that was central to Obama's re-election campaign.

A person familiar with the talks, who said the president was reviewing his proposal from a week ago, when he urged lawmakers to preserve tax cuts for most while letting rates rise above incomes of $250,000 a year. At the same time, Obama said lawmakers should extend unemployment benefits for the long-term jobless. The person was unauthorized to discuss the private meeting publicly and spoke on condition of anonymity.

House of Representatives Speaker John Boehner, House Democratic Leader Nancy Pelosi, McConnell and Reid and were all attending Friday's White House meeting. Vice President Joe Biden and Treasury Secretary Timothy Geithner also attended.

"The clock is ticking," Sen. Max Baucus, chairman of the Senate Finance Committee, said in remarks on the Senate floor during the meeting. "My message to them is simple. We can do this. We can get this done, and we must."

For Obama, the eleventh-hour scramble represented a test of how he would balance strength derived from his re-election against an avowed commitment to compromise in the face of divided government. Despite early talk of a grand bargain between Obama and Boehner that would reduce deficits by more than $2 trillion, the expectations were now far less ambitious

Adding pressure was this week's warning from Geithner that the government would hit its $16.4 trillion borrowing limit on Monday, the final day of the year. That would make it harder for the U.S. to pay its bills.

Democrats said Obama was sticking to his campaign call for increases above $250,000 in annual income, even though in recent negotiations with Boehner he said he could accept $400,000.

After those talks collapsed, and Boehner's own proposal to increase taxes only on anyone earning more than $1 million was doomed by a revolt among conservative Republicans who oppose any tax hikes.

If a deal were to pass the Democratic-controlled Senate, Boehner would have to agree to take it to the floor in the Republican-controlled House.

One Republican who was briefed on the White House meeting said Boehner made it clear he would leave in place spending cuts scheduled to take effect unless alternative savings were found to offset them. If he prevails, that would defer politically difficult decisions on federal benefit programs like the Medicare program for the elderly until 2013.

The stock market was down again Friday amid the developments in Washington. Economists say that if the tax increases are allowed to hit most Americans and if the spending cuts aren't scaled back, the recovering but fragile economy could sustain a shock.